This paper presents revised estimates of the two hours-based measures of labour underutilisation in Australia developed by Mitchell and Carlson (2001a), which explicitly account for hidden unemployment and underemployment. The revisions are due to improvements in the methodology in line with new developments in data collection in Australia. Second, the paper compares and contrasts a range of labour underutilisation measures in terms of their cyclical properties, and seeks to determine whether asymmetry is present and on which labour market groups it impacts on most. Third, the paper considers the role labour underutilisation might play in the inflation process. Several hypotheses within a Phillips curve framework are tested concerning the sources of inflationary pressure in Australia. Specifically, the authors test whether inflation is more sensitive to movements in the short-run underutilisation measures and also whether 'within-firm' underutilisation in the form of underemployment is an additional constraining influence on inflation. The paper finds that broadening the measures of labour underutilisation beyond the official unemployment rate does provide extra insights into labour market behaviour, and that the degree of underutilisation is significantly understated by the conventional unemployment measure. It also finds that there is non-linearity behaviour in the measures driven by large negative demand shocks, with the costs of this asymmetry being more heavily borne by the more marginal workers in the labour market. Finally, it is shown that short-term unemployment provides a stronger discipline on inflation than the official unemployment rate and that underemployment plays an additional constraining role.
Underutilisation of Europe's Labour Resources: CofFEE-Europe Workshop 2002. The Underutilisation of Europe's Labour Resources: Proceedings of the CofFEE-Europe Workshop (Maastricht, the Netherlands 4-5 October, 2002) p. 72-97